USD demand continues, Weak Swiss data

Forex News and Events

Weak Swiss Inflation

Swiss inflation read was disappointing to anyone expected the growth outlook to be picking up. Headline CPI fell -1.3% from -1.0, against an expected decline of -1.0%. All the major groups saw sizable contractions from June with the exception of Alcohol and Tobacco. While fears of an all-out collapse of the Swiss economy due to the SNB removal of the EURCHF “floor” has not transpire. However, we are seeing a clear pattern of economic deceleration. In broad terms the Swiss economy is failing to adjust to the strong CHF and slowing export market (both organically and due to currency induced disadvantage). In terms of the CHF, we anticipating further weakness as economy deteriorate further and investors chase yields abroad (monetary policy divergence). While the SNB has limited ability to effect EURCHF positioning, they have recently show a zeal for pushing the pair higher through direct intervention. This will create a soft floor for bearish CHF traders. The markets naturally unwinding of long CHF positions will make the SNB job easier. We remain confident that the “purest” play for policy divergence will be long USDCHF. USDCHF made short work of resistance at 0.9725, suggesting a bullish extension to 0.9863.

Starting day for US jobs data:

“ADP Employment Change will come in today. Expectations are betting on a July employment change of 215K vs 237K in June. Despite spectacular misses over the last few years, it has been often a good indicator of US non-farm payrolls that will be released this Friday.

Those data will be closely regarded by traders as discussions of a September rate hike keep going although the Fed appeared, in its last FOMC statement, less hawkish than what markets expected. Indeed, there was no clear indication about the Fed’s next monetary policy action as hints are often dropped in order to prepare markets participants to adjust their expectations. It is clear that Janet Yellen did not give explicit confirmation about when the Fed would hike rates. Therefore, we clearly think that it leaves room for a further rate hike later this year.

In addition, a rate hike is still data dependent and the recent turmoil in commodity prices is likely to increase downside pressure on inflation. We anticipate that no rate hike in September will happen for the time being.

EURUSD is now trading below 1.0900 on declarations of Atlanta Fed’s President Lockhart. He stated that the US economy is now ready for the first rate in interest rate in more than nine years. On the contrary, we think that the data are still sending mixed signals. Targeting 1.0900 on ADP release represents a decent target.”

Yann Quelenn – Market Analyst